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OpenMarket: Trade and International

  • Politics vs. Principle: Export-Import Bank Edition

    May 26, 2015 10:14 AM

    On the merits, the case for closing the Export-Import Bank is a slam-dunk. This has made life difficult for the bank’s supporters, especially since the bank will permanently close on June 30 unless Congress reauthorizes its charter. So they are switching to politics.

    One of the top items on Congress’ agenda is Trade Promotion Authority (TPA), which despite some drawbacks, would make international trade a little freer than it is now. Seeing a point of entry, Ex-Im supporters tried to tie Ex-Im reauthorization into the TPA bill. This way, a Senator who opposes Ex-Im might have to hold his nose and vote for it anyway, since it would be part of the larger TPA bill he supports.

    This attempt was rebuffed, and a clean TPA bill is poised to pass the Senate. But Sens. Maria Cantwell (D-Wash.) and Patty Murray (D-Wash.), both coincidentally from major Ex-Im beneficiary Boeing’s home state, did exact a promise from Senate leadership: the Senate will soon hold a separate vote on Ex-Im reauthorization. This is important, since Ex-Im will close if Congress does nothing.

    Since Ex-Im reauthorization is likely to pass the Senate, the political focus moves to the House. Sen. Cantwell tried to get Speaker Boehner to promise to hold a House Ex-Im vote, but he refused. But nor will he get in the way of a vote if members of his own chamber decide to bring one up.

    At least 90 House members oppose Ex-Im reauthorization, according to Heritage Action. The Republican Study Committee (RSC) announced its opposition to Ex-Im reauthorization, though not all RSC members share that stance, most notably Rep. Stephen Fincher (R-Tenn.), who is sponsoring an Ex-Im reauthorization bill. Despite this substantial groundswell, a House majority is 218 members, and it remains to be seen if enough other members will stand firm in opposing the bank.

    So that’s where the issue stands right now. The merits of Ex-Im were decided long ago—despite affecting less than 2 percent of U.S. exports, the agency has still managed to divert billions of dollars of capital away from deserving businesses, subsidize U.S. firms’ foreign competitors, and cause dozens of corruption cases. Now the question becomes whether politics are stronger than principle. Either way, Congress’ pending answer will be revealing.

  • Trade Promotion Authority in the Senate: Do-It-Yourself Economics

    May 21, 2015 10:27 AM

    The U.S. Senate yesterday continued discussion on Trade Promotion Authority (TPA), also called the “fast-track” trade authority, which would give the President power to negotiate trade deals based around certain principles and then present any deal to Congress for a vote with no amendments. The bill failed to progress in the Senate last week by 52-45, with only one Democratic senator – Sen. Thomas Carper (Del.) – voting “yes” on the legislation.

    The Senate is currently working on possible amendments to this bill, with most of the negotiations taking place behind the scenes. Senate majority leader Mitch McConnell filed a cloture motion to stop debate and limit amendments, which will be voted on today.

    In his remarks Sen. McConnell (R-KY) once again emphasized the benefits of trade to entrepreneurs that were described at a recent press conference (hosted with Sen. Warner (D-VA) and Sen. Ernst (R-IA)) with small business owners. These American entrepreneurs highlighted opportunities that knocking down trade barriers overseas could bring to their businesses. While the U.S. does not have many trade barriers, the same cannot be said about the foreign trade partners. Passing TPA is a way to address the situation that damages American exports and workers within those industries. Senator McConnell said:

    “So I’m going to keep working to get votes on amendments, both Republican and Democrat amendments. There have been objections from the other side of the aisle, and I would remind our colleagues that even with my strong support, the Senate can’t have a robust amendment process if every single amendment offered by Democrats or Republicans is objected to by our friends on the other side… The Senate can’t vote on amendments that are being prevented.”

  • Sen. Warren Gets Hit on Trade Issues

    May 20, 2015 5:20 PM

    Washington Post columnist Ruth Marcus (May 20, 2015) took on Sen. Elizabeth Warren’s (D-Mass.) contention that trade agreements are being negotiated in secret, with multinational corporations calling the shots. Warren, the populist flavor of the month, has been leading a campaign against trade deals and against Trade Promotion Authority, all in the name of confronting greedy multinational corporations and helping U.S. workers. 

    In her column titled “A bogus argument against the trade deal,” Marcus skewers Warren’s argument by pointing out that releasing negotiating documents before they are agreed upon undermines the U.S.’s bargaining positions; that lawmakers and their staffs have access to the documents in a secure context; that the negotiating text will be made public 60 days before signing; and that the trade advisory working groups who review the documents were established by Congress.

    Marcus could have gone even further in putting to rest Warren’s charge that trade agreements are being negotiated in secret. Currently, the U.S. Trade Representative is required to consult with Congress during negotiations, and the TPA legislation would significantly broaden those consultations and create Congressional advisory committees on negotiations. Also, Marcus could have noted that currently about 700 private citizens representing not only industrial and agricultural sectors and small business, but labor and environmental groups. In fact the influential Labor Advisory Group includes a broad representation of major labor unions in the country.

  • Trade Promotion Authority: Addressing Some Criticisms

    May 6, 2015 10:00 AM

    Some members of Congress are concerned about Trade Promotion Authority (TPA), which would fast track trade negotiating authority, but in fact it would be a positive move toward ensuring the United States remains a competitive economy. Senator Jeff Sessions (R-Ala.) released a statement this week citing concerns with TPA over increased trade deficits, currency manipulation—claiming it would take power away from Congress and give it to the executive branch—and more.

    AEI’s Derek Scissors published a rebuttal to Sessions’ misdirected attack on TPA that deals with many of the issues raised by Sessions. Scissors noted correctly that some of Sessions’ concerns have little to do with TPA but are hot-button issues for opponents of trade agreements, for example, immigration.

    Several points raised in Sessions’ attack deserve more elaboration. First, contrary to Sessions’ assertion, Trade Promotion Authority does not usurp Congress’ authority in relation to trade agreements. Rather, it is an accommodation between the executive branch and the legislative branch of government to allow trade negotiations to be conducted with credibility with other countries; that is, that agreements reached during negotiations will not be overturned in the voting process. TPA cedes negotiating authority to the president for trade agreements only if certain congressionally determined criteria are met: that very specific objectives outlined in TPA are accomplished in a trade agreement, that Congress is consulted throughout the negotiating process. TPA puts Congress in charge.

  • Why the TPA Is Needed

    April 24, 2015 2:05 PM

    The Trade Promotion Authority (TPA) bill currently moving through Congress is attracting controversy. It is worth explaining the background to why TPA is necessary in complex trade agreements.

    TPA is a temporary power that Congress grants to the president to negotiate international agreements. Even though the U.S. Constitution already gives the president this authority, most trade agreements require implementing bills and thus congressional action to enforce them. While under TPA, Congress retains the authority to decide on whether to approve a particular deal, the final agreements cannot be amended and have to be considered in a timely manner.

    The TPA, formerly known as the “fast-track,” is a result of years of cooperation and concessions between the legislative and executive branches. First introduced as the Trade Act of 1974, it served as a response to the increasing dominance of non-tariff barriers in multilateral trade negotiations. Since the GATT Kennedy Round, the focus of the trade agenda has shifted from tariffs to more complicated issues that require changes in laws in order for the U.S. to abide by the agreements. To address these concerns, in addition to the authority to renegotiate tariffs, Congress introduced expedited treatment, together with limited-time debate and an absence of amendments for trade deals negotiated under TPA.

    The “fast-track” was established to form a consensus on the U.S. trade policy between the two branches, as well as facilitate the development and approval of trade agreements. TPA sends a strong signal to foreign partners of congressional support for an FTA, which is particularly important when negotiation new issues that affect the U.S. global competitiveness. Since it was first introduced, TPA has been renewed numerous times, and played a major role in implementation of various trade agreements.

  • Export-Import Bank Update

    April 16, 2015 6:00 AM

    Things have been busy on the Export-Import (Ex-Im) Bank front. For those not in the know, the Ex-Im Bank makes loans and guarantees loans for U.S. exporters, as well as their foreign customers. For example, if a foreign airline wants to buy a new plane, Ex-Im will arrange favorable financing terms if it buys that plane from U.S.-based Boeing.

    Ex-Im’s critics argue that the bank is a corporate welfare program, and is vulnerable to favoritism and corruption. I compiled several reasons to oppose Ex-Im in this paper. Ex-Im’s defenders counter that Ex-Im is necessary to increase U.S. exports and support American jobs, though buying that argument requires ignoring that 98 percent of U.S. exports happen without Ex-Im’s involvement, and that there are other, possibly better uses for the capital Ex-Im sits on.

    Unlike most other agencies, Ex-Im has a built-in sunset, meaning it will automatically cease to exist unless Congress periodically votes to renew its charter. This led to a bitter political fight last fall, when Ex-Im’s charter was renewed until this June 30. Typical reauthorizations last for four or five years, so this nine-month reauthorization was a significant concession to reformers. As June 30 approaches, the Ex-Im battle is heating up once again. At this point, it appears Congress will hold a vote in May on Ex-Im’s fate.

    This week, the House Financial Services Committee held a hearing, where Ex-Im head Fred Hochberg (see his written testimony here) defended his agency from Chairman Jeb Hensarling (R-TX), who wants to close the bank.

  • Has Greece Already Decided on Grexit?

    April 7, 2015 12:44 PM

    It has been a month since Greece was approved a four-month extension of its current bailout program, on condition that the leftist government implements a number of settled agreements. The extension, however, will only last until the end of June, which means that afterwards Greece will have to carry out serious reforms in order to convince its European creditors to sign the new bailout agreement. Unfortunately, a newly submitted reform plan, as well as controversial attempts to find funding abroad, suggests that Greece might instead be moving towards potential exit from a single currency area.

    The Greek government’s first attempt to unlock 7.2 billion euros worth of bailout funds did not receive much enthusiasm from the Eurozone authorities, which claimed that proposal lacked detail and substance. On Wednesday, Greek officials resubmitted a 26-page reform plan with estimated revenues of 6.1 billion euros this year (as well as funding needs of 19 billion euros). But it appears that the new plan, just like the previous one, includes only revenue raising measures, and hardly addresses any spending cuts. As a matter of fact, contrary to EU demands, the new document includes 1.1 billion euros worth of fresh spending, more than half of which is intended to cover the “13th pension”—an extra month’s pay for low-income retirees or, more specifically, for those who receive less than 700 euros per month. Furthermore, the five measures addressing the labor market included an increase in minimum wage and strengthening collective bargaining.

    The group of 19 Eurozone finance ministers discussed new reforms during the telephone conference on Wednesday, but debate showed little progress, with some officials claiming that the new submission remains insufficient and too optimistic. Meanwhile, the Greek Prime minister Alexis Tsipras promised his members of Parliament that he was not willing to give in to creditors by imposing what he termed recessionary measures on the economy. The head of the Bundesbank Jens Weidmann, however, urged the Greek government to talk less and demonstrate more action, as Greece is running out of time. According to some reports, during the telephone conference Greek official revealed that Greece will run out of cash after April 9. The statement was later denied by the Greek finance ministry.

    According to Goldman Sachs, Greek capital flight has reached an estimated 15.2 billion euros over the last three months, which together with tighter market conditions caused a severe shock to the economy. While deposit withdrawals declined to around 3 billion euros in March, the outflow since October has totaled 28 billion euros. In the mean time, Greek banks are continuing to purchase government debt instruments, using the emergency liquidity assistance (ELA) provided by the European Central Bank (ECB). Therefore, it is not surprising that on Wednesday Fitch Ratings downgraded four Greek banks’ long-term issuer default ratings (IDR) from “B -” to “CCC”, following the downgrade of the country’s sovereign rating last week.

  • Brussels Meeting Ends with White Smoke

    February 20, 2015 5:05 PM

    To surprise of many, Friday’s meeting in Brussels ended with white smoke, like Greek Finance Minister Yanis Varoufakis has hoped when he was referring to the signaling system used by the Vatican. The meeting, which was scheduled to discuss Greece’s proposal for a six-month extension of its loan agreement with the Eurozone lenders, was sealed with a deal to extend the current bailout by four months.

    The Greek government formally submitted their request on Thursday, following pressure from the ECB, which decided to raise a cap of Emergency Liquidity Assistance to Greek banks to 68.3 billion euros. The modest increase of 3.3 billion euros of cash offered by the ECB was significantly smaller than the 10 billion euros that the Greek Central Bank had been requesting.

    Even though the decision to ask for an extension was welcomed by the markets, Germany’s early reaction suggested a pessimistic outcome on Friday. A German document, prepared for the Euro Working Group meeting in Brussels on Thursday, called Greek proposal a “Trojan horse,” as it did not include any clear commitment to successfully conclude the current program and it fell short of a clear freeze of proposed Greek spending measures.

    Additional pressure was applied by Donald Tusk, President of the European Council, who rejected Greek prime minister’s calls to convene a summit of Eurozone leaders on Sunday, in case there was no deal today. Moreover, SKAI TV also reported that Spanish and Portuguese ministers, who also have leftist parties gaining support in their countries, tried to block any deal favorable to Greece.

    According to the Greek Mega TV, the temporary agreement includes a four month extension of Greece’s bailout program, with no austerity measures. However, Greece had to commit not to make any unilateral decisions regarding its plans to reverse reforms made by the previous Greek government, including increasing pensions and wages. Eurogroup President Jeroen Dijsselbloem added that Greek government will also have to present a list of reforms to the Eurozone by Monday.

    Even though Jeroen Dijsselbloem announced that Greece has committed to honour the previous government’s financial obligations, today’s agreement does not mean that Europe’s problems are finally over. The extension was made only for four months and both sides will have to engage in another round of discussions over the permanent deal.

  • Greek Government's Stance Suggests a Confrontation with the EU

    February 4, 2015 9:05 AM

    The latest statements of the newly elected Greek government show that negotiations between Athens and the so-called “Troika” will not be easy. SYRIZA sent a strong signal to EU leaders, asserting that Greece will no longer tolerate externally-imposed austerity measures and demanding a write-down of what the party calls unsustainable debt. While the Greek government repeats that it wishes to reach an agreement beneficial for both sides, and EU continues to claim that it wants Greece to remain in the Eurozone, neither side has so far shown any sign of mutually-acceptable compromise.

    Alexis Tsipras, the Greek Prime Minister and the leader of SYRIZA, has been quick to reassure his supporters that SYRIZA intends to keep its campaign promises. During the first cabinet meeting the ruling coalition stopped two big privatizations and is now moving towards reinstating fired public sector workers, and raising pensions and minimum wages. Mr. Tsipras plans to present the complete program to the parliament within a few days.

    The Greek government has not wasted any time trying to fulfill its other major promise—the write-down of the Greece’s debt. Last Friday, following the meeting with the Eurogroup’s chief Jeroen Dijsselbloem, newly assigned Finance Minister Yanis Varoufakis announced that Greece will not take out any new loans to meet its future debt obligations. The anti-austerity minister claims that Greece is insolvent and refused to cooperate with the appointed inspectors overseeing the bailout program, stating that Greece wants to negotiate directly with the Troika.

    Unsurprisingly, international lenders were not pleased with the position taken by the Greek government. In an interview to the Berliner Morgenpost, German Chancellor Angela Merkel said that she does not see further debt haircuts for Greece, as it has already been forgiven billions of euros by private creditors and banks. Likewise, Erkki Liikanen, a member of the ECB policymaking Governing Council, warned that if Greece fails to reach an agreement with its lenders, the ECB will be obliged to pull the plug on Greek banks. Without the liquidity assistance Greece would be forced to leave the Eurozone, especially since four major Greek banks have already lost a third of their stock value, and continue to face massive deposit withdrawals.

    SYRIZA does not have much time, as the current bailout program is due to expire on February 28. While Greece might have funds to meet its obligations the next few months, in summer it will face around 10 billion euros worth of debt repayments. The sharp increase in borrowing costs ruled out funding opportunities from the financial markets, as Greek 3-year and 10-year bond yields reached 16.6 and 9.8 percent respectively.

  • Don't Reauthorize the Ex-Im Bank

    January 29, 2015 9:40 AM

    Here’s a letter I wrote to the Pittsburgh Post-Gazette that appears in today’s paper:

    The Post-Gazette’s editorial board calls on Congress to reauthorize the Export-Import Bank because the agency supposedly nets the government a profit (“Save the Ex-Im Bank: A Frugal Congress Must Keep a Revenue Generator”). 

    This is misleading for two reasons.

    First, Ex-Im’s self-reported profits are largely the result of creative accounting practices. A recent Congressional Budget Office study using industry-standard fair-value accounting rules (“Fair-Value Estimates of the Cost of Selected Federal Credit Programs for 2015-2024,” May 2014) found that Ex-Im loses an average of $200 million per year.

    Second, even if Ex-Im did make a $675 million profit last year, this is less than two-tenths of 1 percent of last year’s $483 billion budget deficit. 

    If Ex-Im’s goal is to raise revenue, it is spectacularly ineffective.

    Congress should let this corruption-enabling program expire and turn its attention elsewhere.

    RYAN YOUNG
    Fellow
    Competitive Enterprise Institute
    Washington, D.C.

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